Page 119 - M97TB9_2018-19_[low-res]_F2F_Neat2

Chapter 5 Features and operation of non-proportional reinsurance treaties 5/13

Disadvantages
No claims can be made unless and until the insurer has first incurred an ultimate net loss on business
covered during the accident year in excess of a chosen figure. In addition to its initial retention, the
insurer may be required to retain a further percentage of the ultimate net loss in the form of co-
insurance.
Consider this…
Here we can see a parallel with stop loss, covered in section A2, where both variants require the insurer to bear the
effects of part of the overall loss.

A4 Other forms of excess of loss covers
Clash excess of loss
If an insurer bought protection for separate classes of business written by the company, there could be
instances where a single event would impact on two or more classes.

Be aware
A storm could have an impact on both the marine cargo and property branches.

The insurer might not want to risk having to retain losses from this event in both classes of business, as
this could impact unfavourably on its overall profitability.

Clash excess of loss cover responds to the aggregation of identified classes of insurance when two or Chapter
more of its insureds suffer a loss from the same loss event. Another scenario is that the insurer may
have purchased separate excess of loss protections for motor, general public liability, employers’ 5
liability and personal accident, together with a property excess of loss programme, including the motor
own damage, or marine hull, account. In addition, there may be separate programmes in force for the
insurer’s engineering and marine, aviation and transport accounts. In essence, clash cover provides the
insurer with protection against an accumulation of net losses across a number of accounts once all of its
more specific reinsurances have been used in the separate accounts. Reference copy for CII Face to Face Training

Question 5.5

If losses were to occur involving more than one of these separate programmes, how would a clash excess of loss
protection benefit the insurer?

Here is another example to help our understanding of how clash covers work.

Example 5.11
An insurer has protected both cargo from one company awaiting shipping at a dock and goods at the nearby
warehouse of another. Both are destroyed by the same fire and the insurer would have to pay out to both firms and
seek to recover from its excess of loss protections. One claim might be made against its marine account with a
deductible of £100,000 and the other might be under the property account with a deductible of £200,000. The
insurer would then be left with a combined net retention of £300,000. However, if there was a clash protection for
£400,000 excess of £100,000 then it could claim £200,000 from this excess of loss protection.

Umbrella excess of loss
While the clash excess of loss protects the insurer’s aggregation of programme retentions, an umbrella
Protects the insurer
excess of loss protects the insurer against the exhaustion of all its excess of loss programmes. In other against the
words, against that fateful loss event that utilises all of the insurer’s programmes. It is a single exhaustion of all its
excess of loss
composite excess of loss cover that protects the insurer against an accumulation of losses in excess of programmes
its specific underlying policy limits. Therefore, the cover responds after a loss has gone through all the
layers of a particular programme. It is called an umbrella as it is designed to sit above the covers put in
place for a number of classes. The reinsurers would have to consider the loss potential arising from the
programmes for any of those classes of business, all of which are most likely to be exhausted at
different monetary levels. Figure 5.2 shows how this arrangement looks when expressed
diagrammatically.